September Industrial Production, October Empire State Survey

Industrial Production for September grew by 0.2 percent. August was revised down to unchanged.

Capacity Utilization improved to 77.4 percent in September, still weak by historical standards.

The Empire State Manufacturing Survey for October stayed weak at -8.5, little changed from Sept.

U.S. industrial production increased by 0.2 percent in September, but IP for August was revised down to unchanged. The headline numbers continue to portray an economy that is expanding, but only weakly. And so the current economic environment is best described as a weak economic expansion, but not a recovery. In the current economic environment, labor market conditions are not recovering in most areas as the U.S. unemployment rate stays stuck at 9.1 percent. Housing markets are not recovering in most areas, as prices remain very soft. Household finances are not recovering as shown by August 2011 per capita real disposable income below the level of May 2010. In this weak growth environment, headline numbers for various economic metrics tend to present a false image of uniform economic conditions, masking the undercurrents. In a low-growth economy it is the undercurrents that matter, because the tide is not rising fast enough to lift all boats. We could also call this “The Situational Economy.” For manufacturing industries, economic conditions depend on their specific situations, such as industry, region and markets, and not so much on overall economic conditions. In September, durable goods manufacturing output increased by 0.6 percent. Autos gained 0.7 percent. Aerospace was up 2.3 percent. Electrical equipment and appliances gained 1.3 percent. Nondurable manufacturing output was up a weaker 0.2 percent, weighed down by losses in apparel and printing. Utility output dragged the headline number down by declining by 1.8 percent in September. Overall capacity utilization inched up to 77.4 percent, but remains quite weak in the auto sector at 65.1 percent. For the third quarter as a whole, industrial production increased at a respectable 5.1 percent annualized rate, supported by the July rebound in auto production.

The Empire State Manufacturing Survey for October showed that general business conditions for manufacturers in New York State remain challenging. The October general business conditions index fell slightly to -8.5, the fifth consecutive negative reading. The survey reflects a regional economy that has limited exposure to the auto sector, to aerospace, and to energy production.

Market Reaction: Equity markets opened with losses. Treasury yields are down at the long end. Oil is down to $86.10/barrel. The dollar is down against the yen and up versus the euro.